Indiana Salesperson (National) Practice Test

Practice test questions — Salesperson (National)

1. Which of the following best describes 'fee simple' ownership?

   • A leasehold interest of fixed duration
   • The highest and most complete form of ownership, with no inherent time limit ✓
   • A life estate that ends at the owner's death
   • An ownership interest shared with the government

   Fee simple (or fee simple absolute) is the highest and most complete form of real property ownership. The owner has the rights to possess, use, alter, transfer, and devise the property without an inherent time limit. Fee simple is what most residential homeowners hold. It is subject only to governme…

2. Two unmarried friends purchase a home together as joint tenants with right of survivorship. One dies without a will. What happens to her share?

   • It passes to her heirs by intestate succession
   • It passes automatically to the surviving joint tenant outside of probate ✓
   • It is sold and the proceeds go to her estate
   • The state takes the share

   Joint tenancy with right of survivorship has a defining feature: when one joint tenant dies, their interest passes automatically and immediately to the surviving joint tenant(s) outside of probate. This 'right of survivorship' is the main reason couples and friends choose joint tenancy. The deceased…

3. What is 'eminent domain'?

   • A real estate broker's exclusive right to list a property
   • The government's power to take private property for public use upon payment of just compensation ✓
   • A buyer's right to inspect a property
   • A type of trespass that can become ownership

   Eminent domain is the government's constitutional power to take private property for public use, with just compensation paid to the owner. It is one of the four government powers over private real estate (along with police power, taxation, and escheat). Common uses: highway construction, schools, pu…

4. Zoning laws are an exercise of which government power?

   • Eminent domain
   • Police power ✓
   • Taxation
   • Escheat

   Zoning laws are an exercise of police power — the government's authority to regulate private activity to protect public health, safety, morals, and general welfare. Zoning regulates the use of land (residential, commercial, industrial, agricultural), the density of development, the height and setbac…

5. Which of the following is the most important factor in determining a property's value?

   • The seller's asking price
   • What the seller paid for the property
   • Supply and demand for similar properties in the market, comparable sales, and the property's specific characteristics ✓
   • The buyer's emotional attachment

   Market value is determined by what willing, informed buyers and sellers would agree to in an arm's-length transaction. The main inputs are: (1) supply and demand in the local market, (2) comparable sales of similar properties (the 'sales comparison approach'), (3) the property's specific physical ch…

6. What is the primary distinction between a mortgage and a deed of trust?

   • Mortgages are for commercial property, deeds of trust for residential
   • A mortgage typically involves two parties (borrower-mortgagor and lender-mortgagee) and judicial foreclosure; a deed of trust involves three parties (borrower-trustor, lender-beneficiary, neutral trustee) and often non-judicial foreclosure ✓
   • Deeds of trust are illegal in most states
   • There is no practical difference

   A mortgage and a deed of trust serve the same economic function — securing a loan with real property as collateral — but use different legal structures. A mortgage is a two-party agreement: the borrower (mortgagor) pledges the property to the lender (mortgagee) as security. If default occurs, the le…

7. What does 'PITI' stand for in mortgage lending?

   • Property, Insurance, Taxes, Income
   • Principal, Interest, Taxes, Insurance ✓
   • Purchase, Inspection, Title, Inventory
   • Promise, Indemnity, Trust, Interest

   PITI stands for Principal, Interest, Taxes, and Insurance — the four standard components of a typical mortgage payment. Principal repays the loan balance; interest is the cost of borrowing; taxes are property taxes collected by the lender and held in escrow to pay the local government; insurance is …

8. What duties does an agent owe to their principal?

   • Only honesty
   • Fiduciary duties including loyalty, obedience, disclosure, confidentiality, accounting, and reasonable care (OLD-CAR) ✓
   • Only the duties spelled out in writing
   • No specific duties beyond getting a deal done

   An agent owes fiduciary duties to their principal — the highest standard of care recognized in law. The mnemonic OLD-CAR captures the duties: Obedience to lawful instructions; Loyalty (acting in the principal's best interest, not the agent's); Disclosure (sharing all material facts known to the agen…

9. Which of the following is required for a valid 'puffing' statement (not an actionable misrepresentation)?

   • A specific factual claim
   • An exaggeration or opinion that no reasonable person would rely on as fact ✓
   • A written warranty
   • A signed disclosure form

   'Puffing' is salesmanship — exaggeration or opinion that a reasonable person would not rely on as a statement of fact. Examples: 'This is the best house in the neighborhood', 'You'll love it here', 'This is a great investment'. Puffing is not actionable misrepresentation because no reasonable buyer …

10. What does federal lead-based paint disclosure law require?

    • All homes must be tested for lead
    • Sellers and landlords of residential property built before 1978 must disclose known lead-based paint and lead-based paint hazards, provide an EPA pamphlet, and give buyers 10 days to inspect ✓
    • Only homes built before 1900 have disclosure obligations
    • Lead disclosure is only required if the buyer asks

    The federal Residential Lead-Based Paint Hazard Reduction Act of 1992 (Title X) requires that sellers and landlords of residential property built before 1978 disclose any known lead-based paint or lead hazards, provide a copy of the EPA pamphlet 'Protect Your Family from Lead in Your Home', and give…

11. Under federal Fair Housing law, which of the following is a protected class?

    • Marital status
    • Race, color, religion, sex (including gender identity), national origin, disability, and familial status ✓
    • Sexual orientation only
    • Age (in housing contexts)

    The federal Fair Housing Act (1968, as amended) prohibits discrimination in housing on the basis of race, color, religion, sex, national origin, disability, and familial status (presence of children under 18). HUD has interpreted 'sex' to include gender identity and sexual orientation. Marital statu…

12. Which of the following is NOT required for a valid real estate contract?

    • Offer and acceptance (mutual assent)
    • Consideration
    • A witnessed signature in front of a notary ✓
    • Legal purpose

    A valid real estate contract requires: (1) offer and acceptance (mutual assent or 'meeting of the minds'); (2) consideration (something of value exchanged, even if symbolic); (3) legal purpose (the contract cannot require an illegal act); (4) competent parties (legally capable of contracting); and (…

13. What is 'earnest money' in a real estate transaction?

    • The down payment required by the lender
    • A good-faith deposit from the buyer, held in escrow, that demonstrates serious intent and is applied to the purchase price at closing ✓
    • The seller's profit from the sale
    • A fee paid to the agent at signing

    Earnest money is a good-faith deposit the buyer pays at the time of signing the purchase contract. It demonstrates serious intent (a buyer with cash at risk is more likely to follow through) and provides the seller some compensation if the buyer defaults. The amount is negotiable, typically 1-3% of …

14. A home sells for $400,000. The total commission rate is 6%, split equally between listing and buyer brokers. Each broker then pays its agent 50%. What does the listing agent receive?

    • $24,000
    • $12,000
    • $6,000 ✓
    • $3,000

    Step by step: total commission = 6% of $400,000 = $24,000. Split equally between listing and buyer brokerages = $12,000 to each brokerage. Each brokerage pays its agent 50% = $6,000 to the listing agent. The buyer's agent receives the same amount from their brokerage's share. Real estate math questi…

15. A property's gross monthly rent is $2,000. Its gross rent multiplier (GRM) in the market is 150. What is the estimated property value using the GRM method?

    • $300,000 ✓
    • $240,000
    • $3,000,000
    • $150,000

    GRM (Gross Rent Multiplier) method: Property Value = Gross Monthly Rent × GRM. So $2,000 × 150 = $300,000. The GRM is a quick approximation used for small income properties. It is a ratio derived from comparable sales in the market: take recent sale price ÷ monthly rent for several comparables to fi…

16. A home is purchased for $250,000 with a 20% down payment. What is the loan amount?

    • $50,000
    • $200,000 ✓
    • $220,000
    • $230,000

    Down payment: 20% × $250,000 = $50,000. Loan amount = purchase price − down payment = $250,000 − $50,000 = $200,000. The 20% down payment is significant in residential financing because it is typically the threshold at which private mortgage insurance (PMI) is no longer required on conventional loan…

17. An agent who represents the buyer is called a:

    • Listing agent
    • Buyer's agent (or buyer's broker) ✓
    • Dual agent
    • Transaction broker

    An agent who represents the buyer in a real estate transaction is called a buyer's agent or buyer's broker. They owe fiduciary duties (OLD-CAR) to the buyer. A listing agent represents the seller. A dual agent represents both parties in the same transaction (allowed in some states with full informed…

18. Which of the following is considered real property rather than personal property?

    • A free-standing refrigerator the seller plans to take
    • A built-in dishwasher attached to the cabinetry ✓
    • A removable area rug
    • A piece of art hung with a nail

    Real property is land and anything permanently attached to it (improvements, fixtures). Personal property is movable. The classification matters because real property transfers with the sale of the home unless excluded; personal property does not transfer unless included. The 'fixture test' uses thr…

19. Which approach to value is most useful for unique properties like churches or specialized buildings with no comparable sales?

    • Sales comparison approach
    • Cost approach (estimate land value + depreciated reproduction or replacement cost of improvements) ✓
    • Income approach
    • Gross rent multiplier

    The cost approach estimates value as land value plus the depreciated cost of reproducing or replacing the improvements. It is most useful for unique properties (churches, schools, museums, special-use buildings) where there are few or no comparable sales. It is also a common approach for new constru…

20. What is RESPA and what does it require?

    • A federal law about toxic substances; requires testing of properties
    • The Real Estate Settlement Procedures Act; requires lenders to provide Loan Estimate and Closing Disclosure forms, prohibits kickbacks for referrals, and regulates escrow accounts ✓
    • A state-by-state agency licensing standard
    • A federal property tax provision

    RESPA (Real Estate Settlement Procedures Act, 1974) is a federal consumer protection law that regulates residential mortgage transactions. Key requirements: (1) lenders must provide a Loan Estimate within 3 business days of application, summarizing loan terms and estimated closing costs; (2) lenders…

21. What is 'liquidated damages' in a real estate contract?

    • Cash payment to the agent for closing the sale
    • A pre-agreed amount of damages that the non-breaching party can claim if the other party defaults — commonly the buyer's earnest money ✓
    • The cost of repairs needed before closing
    • Damages awarded after a lengthy court trial

    A liquidated damages clause in a contract specifies, in advance, the amount of damages the non-breaching party may claim if the other party defaults. In residential real estate, the most common form is that the seller may keep the buyer's earnest money as liquidated damages if the buyer defaults. Th…

22. An 'easement' is best defined as:

    • Ownership of part of someone else's property
    • A right to use another person's land for a specific purpose, without ownership of the land itself ✓
    • A government tax on land use
    • A short-term lease

    An easement is a right to use another person's land for a specific purpose, without owning the land. Common examples: a utility company's right to maintain power lines across private property; a neighbor's right to cross a driveway to reach a landlocked parcel; a city's right to maintain a public si…

23. A buyer obtains a 30-year fixed mortgage of $300,000 at 6% interest. What is the first month's interest payment?

    • $500
    • $1,500 ✓
    • $3,000
    • $18,000

    Monthly interest = (Loan Balance × Annual Rate) ÷ 12. So $300,000 × 0.06 ÷ 12 = $300,000 × 0.005 = $1,500. The first month's interest is $1,500. The total monthly payment of principal and interest (P&I) on a 30-year $300,000 loan at 6% is roughly $1,799, of which $1,500 is interest and about $299 is…

24. What is 'commingling' and why is it a serious violation for real estate agents?

    • Working with multiple clients; not a violation
    • Mixing a client's funds (such as earnest money) with the agent's or brokerage's operating funds; a serious violation in every state ✓
    • Discussing a client's business with another client; only a violation in some states
    • Offering to buy a client's listing; a minor violation

    Commingling is mixing a client's funds — most commonly earnest money — with the agent's or brokerage's own operating funds. It is a serious violation of real estate license law in every state. Client funds must be deposited promptly into a designated trust or escrow account, kept separate from the b…

25. A seller is aware that the basement floods during heavy rain. Do they have to disclose this to the buyer?

    • No; the buyer should inspect for themselves
    • Yes, in most states: known material defects must be disclosed in writing, and concealing them can expose the seller to liability ✓
    • Only if asked directly
    • Only if the property has flooded within the past 12 months

    Material defects known to the seller must be disclosed to buyers under most state laws. A basement that floods is a material defect because it affects the property's value, habitability, and safe use. Most states require a written property disclosure form listing known defects (water damage, foundat…

26. What is a 'listing agreement' and what does it create?

    • A document the buyer signs
    • A contract between the seller and a listing broker that authorizes the broker to market the property and creates an agency relationship with the seller as principal and the broker as agent ✓
    • A mortgage agreement
    • A document that lists all defects in the property

    A LISTING AGREEMENT is a bilateral contract between a property owner (principal) and a real estate broker (agent). It: authorises the broker to market and sell the property; defines the agency relationship (broker represents the seller as their fiduciary); specifies the compensation (commission perc…

27. What is 'earnest money' and who holds it?

    • The agent's commission paid upfront
    • A good-faith deposit made by the buyer to demonstrate serious intent to purchase — held in the broker's trust (escrow) account until closing or termination ✓
    • The seller's down payment
    • Money paid to the listing agent at contract signing

    EARNEST MONEY (also called a good-faith deposit or escrow deposit) is a sum the buyer deposits when a purchase contract is signed, demonstrating commitment to the transaction. Key points: HELD IN TRUST by the listing broker, selling broker, or escrow company — not by the seller or agent personally (…

28. Which of the following is NOT a protected class under the federal Fair Housing Act?

    • Race
    • National origin
    • Occupation or income level ✓
    • Familial status

    The federal FAIR HOUSING ACT (Title VIII, 1968, as amended) prohibits housing discrimination based on: RACE; COLOR; NATIONAL ORIGIN; RELIGION; SEX (gender); FAMILIAL STATUS (families with children under 18); DISABILITY (physical or mental). Occupation, income level, occupation type, age (except for …

29. A home sells for $425,000. The listing broker receives a 6% total commission split 50/50 with the buyer's agent brokerage. The listing agent receives 60% of their brokerage's commission. What does the listing agent earn?

    • $7,650 ✓
    • $12,750
    • $15,300
    • $25,500

    Step 1: Total commission = 6% × $425,000 = $25,500. Step 2: Listing brokerage's share = 50% × $25,500 = $12,750. Step 3: Listing agent's share = 60% × $12,750 = $7,650. Commission calculation questions follow this structure: total commission → broker's split → agent's split. The exam uses various sp…

30. What does 'loan-to-value ratio' (LTV) mean, and why does it matter?

    • The ratio of the mortgage payment to monthly income
    • The ratio of the loan amount to the property's appraised value — lenders use LTV to assess risk; higher LTV = higher risk; LTV above 80% typically requires private mortgage insurance (PMI) ✓
    • The ratio of the property's value to its tax assessment
    • The number of years remaining on the loan

    LOAN-TO-VALUE (LTV) = loan amount ÷ property value (appraised or purchase price, whichever is lower). Example: $280,000 loan on a $350,000 property = 80% LTV. Why it matters: RISK ASSESSMENT: Lenders view high LTV as higher risk (less equity cushion); PRIVATE MORTGAGE INSURANCE (PMI): Conventional l…

31. What is 'dual agency' and why is it controversial?

    • When two agents represent the same client
    • When the same broker or agent represents both the buyer AND the seller in the same transaction — creating a potential conflict of interest because both parties have opposing interests (seller wants highest price; buyer wants lowest price) ✓
    • When two separate brokerages cooperate on a transaction
    • When an agent holds two licences

    DUAL AGENCY occurs when the same broker/agent represents both sides of a transaction. The conflict: the agent owes fiduciary duties (loyalty, confidentiality, full disclosure) to both parties — but their interests directly conflict. The seller wants maximum price; the buyer wants minimum price. The …

32. A buyer's agent is asked by their client to show them homes 'only in certain neighbourhoods' in a way that steers them away from racially diverse areas. What must the agent do?

    • Follow the client's instructions — the client is the principal
    • Refuse to engage in steering — showing property only in certain areas based on race, colour, national origin, or other protected classes is 'blockbusting' or 'steering,' both illegal violations of the Fair Housing Act ✓
    • Ask the client to sign a waiver first
    • Notify the seller that a buyer of a different race is interested

    STEERING is the illegal practice of directing buyers toward or away from certain neighbourhoods based on the protected characteristics of current or prospective residents. It violates the Fair Housing Act regardless of whether the request comes from the buyer themselves. The fact that a client reque…

33. What is the difference between a 'freehold estate' and a 'leasehold estate'?

    • Freehold is commercial; leasehold is residential
    • Freehold estate: ownership interest of indefinite duration (fee simple, life estate); leasehold estate: tenant's right to possess property for a specific period under a lease — NOT ownership ✓
    • Freehold is a mortgage; leasehold is a deed
    • They are the same type of estate with different names

    FREEHOLD ESTATE is an ownership interest in real property of indefinite duration: FEE SIMPLE ABSOLUTE (most common, most complete — owner has full rights, passes to heirs); FEE SIMPLE DEFEASIBLE (ownership that can be terminated if a condition occurs — 'so long as used as a school'); LIFE ESTATE (ow…

34. A property's assessed value is $180,000. The tax rate is $15 per $1,000 of assessed value. What are the annual property taxes?

    • $1,800
    • $2,500
    • $2,700 ✓
    • $3,000

    Property tax calculation: Tax = (Assessed Value ÷ $1,000) × Tax Rate. Tax = ($180,000 ÷ $1,000) × $15 = 180 × $15 = $2,700. This is the standard mill-rate calculation. A mill rate (or millage) represents tax per $1,000 of assessed value. $15 per $1,000 = 15 mills. Annual property tax = $2,700. Varia…

35. What does 'proration' mean in a real estate closing?

    • The division of the property between multiple owners
    • The fair division of ongoing expenses (property taxes, rent, HOA fees, utilities) between buyer and seller based on the closing date — each party pays for the period they owned/occupied the property ✓
    • The broker's commission calculation
    • The lender's fee for processing the loan

    PRORATION divides shared ongoing costs between buyer and seller at closing based on the date of ownership transfer. Common items prorated: PROPERTY TAXES (if paid in arrears — seller owes for the days they owned the property in the current tax period); PREPAID RENT (if income property — buyer gets c…

36. What type of ownership gives two or more owners equal, undivided interest with the right of survivorship?

    • Tenancy in common
    • Joint tenancy — co-owners have equal undivided interests, and when one owner dies, their share automatically passes to the surviving joint tenant(s) rather than to heirs ✓
    • Severalty
    • Tenancy at will

    JOINT TENANCY: Co-ownership where owners hold equal, undivided interests WITH the RIGHT OF SURVIVORSHIP — when one owner dies, their interest passes automatically to the surviving joint tenant(s), bypassing probate. THE FOUR UNITIES required (PITT): Possession (equal right to possess the whole); Int…

37. What are the essential elements required for a valid real estate contract?

    • Only a signature
    • Offer and acceptance (mutual assent), consideration, legal capacity of the parties, legal purpose, and (for real estate) it must be in writing per the Statute of Frauds ✓
    • Just a verbal agreement
    • Only earnest money

    ESSENTIAL ELEMENTS OF A VALID CONTRACT: (1) OFFER AND ACCEPTANCE (mutual assent / 'meeting of the minds'); (2) CONSIDERATION (something of value exchanged); (3) LEGAL CAPACITY (parties must be of legal age and sound mind); (4) LEGAL PURPOSE (the contract's objective must be lawful); (5) For real est…

38. In a mortgage, who is the mortgagor and who is the mortgagee?

    • The mortgagor is the lender; the mortgagee is the borrower
    • The mortgagor is the BORROWER (who gives the mortgage as security); the mortgagee is the LENDER (who receives the mortgage) ✓
    • They are the same party
    • The mortgagor is the real estate agent

    MORTGAGOR vs MORTGAGEE: MORTGAGOR = the BORROWER — they 'give' (grant) the mortgage to the lender as security for the loan; the suffix '-or' is the one giving; MORTGAGEE = the LENDER — they 'receive' the mortgage; the suffix '-ee' is the one receiving; MEMORY AID: The borrOWER OWES; the mortgagOR gi…

39. Which appraisal approach is most appropriate for valuing a single-family residential home?

    • Income approach
    • Sales comparison approach — comparing the subject property to recently sold similar properties (comparables), adjusting for differences; this is the primary method for residential property ✓
    • Cost approach only
    • Gross rent multiplier

    THREE APPRAISAL APPROACHES: (1) SALES COMPARISON APPROACH (market data approach): Compares the subject to recently SOLD similar properties (comparables/'comps'), adjusting for differences (size, location, condition, features); the PRIMARY method for SINGLE-FAMILY RESIDENTIAL; (2) COST APPROACH: Valu…

40. What is an easement?

    • A type of loan
    • A right to use another person's land for a specific purpose (such as a right-of-way or utility access) without owning it ✓
    • A property tax
    • A type of deed

    EASEMENT: A non-possessory right to USE another person's land for a specific purpose without owning it. TYPES: EASEMENT APPURTENANT: Benefits an adjacent parcel (the 'dominant estate') and burdens another ('servient estate') — runs with the land (transfers with ownership); e.g., a driveway crossing …

41. What type of deed offers the GREATEST protection to the buyer (grantee)?

    • Quitclaim deed
    • General warranty deed — the grantor warrants (guarantees) clear title against all defects, even those arising before the grantor owned the property, and will defend the title against all claims ✓
    • Special warranty deed
    • Bargain and sale deed

    DEED TYPES AND PROTECTION LEVELS: GENERAL WARRANTY DEED (most protection): The grantor warrants the title against ALL defects, including those that arose before the grantor owned the property; includes full covenants (seisin, against encumbrances, quiet enjoyment, further assurance, warranty forever…

42. What does the term 'amortization' mean in a mortgage loan?

    • The down payment
    • The gradual repayment of a loan through regular payments of principal and interest over time, so the balance reaches zero by the end of the term ✓
    • The interest rate
    • The property tax

    AMORTIZATION: The process of gradually paying off a loan through scheduled regular payments that include both PRINCIPAL and INTEREST, structured so the loan balance reaches ZERO by the end of the term. FULLY AMORTIZED LOAN: Each payment covers all the interest due plus some principal; early payments…

43. What is the government's power to take private property for public use, with just compensation, called?

    • Police power
    • Eminent domain — the government's constitutional power to take private property for public use, provided the owner receives just compensation; the actual taking process is called condemnation ✓
    • Escheat
    • Taxation

    GOVERNMENT POWERS OVER PROPERTY (PETE): POLICE POWER: Regulating property for public health, safety, welfare (zoning, building codes) — no compensation; EMINENT DOMAIN: The power to TAKE private property for PUBLIC USE with JUST COMPENSATION (Fifth Amendment); the legal process of taking is CONDEMNA…

44. In a real estate sales contract, what is 'liquidated damages'?

    • Cash the buyer receives at closing
    • A predetermined amount (often the earnest money deposit) that the seller may keep if the buyer defaults, agreed upon in advance as compensation, avoiding the need to prove actual damages in court ✓
    • The agent's commission
    • The property's appraised value

    LIQUIDATED DAMAGES: An amount agreed upon IN ADVANCE in the contract as the compensation a party will receive if the other party breaches/defaults — avoiding the need to prove actual damages later. IN REAL ESTATE: Commonly, if the BUYER defaults (backs out without a valid contingency), the SELLER ma…

45. What economic principle holds that a property's maximum value tends to be set by the cost of acquiring an equally desirable substitute property?

    • The principle of contribution
    • The principle of substitution — a buyer will pay no more for a property than the cost of an equally desirable substitute; this underlies the sales comparison approach to value ✓
    • The principle of conformity
    • The principle of anticipation

    PRINCIPLE OF SUBSTITUTION: A rational buyer will pay no more for a property than the cost of acquiring an equally desirable SUBSTITUTE property. This principle underlies the SALES COMPARISON APPROACH (and influences all three approaches) — if a comparable home is available for less, the buyer won't …

46. What is a contingency in a real estate purchase contract?

    • A type of commission
    • A condition that must be met for the contract to proceed to closing — common examples include financing, inspection, and appraisal contingencies; if a contingency is not satisfied, the buyer can typically cancel and recover earnest money ✓
    • The closing date
    • The down payment amount

    CONTINGENCY: A CONDITION written into a purchase contract that must be satisfied (or waived) for the contract to proceed to closing. If a contingency is not met, the protected party (usually the buyer) can cancel the contract — typically recovering their earnest money. COMMON CONTINGENCIES: FINANCIN…

47. What is the difference between real property and personal property?

    • They are the same
    • Real property is land and things permanently attached to it (buildings, fixtures); personal property (chattel) is movable property not permanently attached — a key issue is whether an item is a fixture (real) or removable (personal) ✓
    • Real property is only land
    • Personal property is only money

    REAL vs PERSONAL PROPERTY: REAL PROPERTY (realty): Land and everything PERMANENTLY ATTACHED to it — the land itself, buildings, fixtures, and the bundle of legal rights; transferred by deed; PERSONAL PROPERTY (chattel/personalty): MOVABLE items NOT permanently attached — furniture, vehicles, applian…

48. What is the purpose of title insurance?

    • To insure the building against fire
    • To protect the insured (owner or lender) against losses from defects in the title that existed before the policy was issued — such as undiscovered liens, forgery, errors in public records, or competing ownership claims ✓
    • To insure against future damage
    • To pay the property taxes

    TITLE INSURANCE: Protects the insured against financial loss from DEFECTS in the title that EXISTED BEFORE the policy was issued (covers past events, unlike hazard insurance which covers future events). COVERED DEFECTS: Undiscovered liens; forgery in the chain of title; errors or omissions in public…

49. Under the federal Fair Housing Act, which of the following is an example of illegal 'steering'?

    • Showing a buyer all available homes in their price range
    • Directing prospective buyers toward or away from particular neighborhoods based on their race, religion, or other protected class — limiting their housing choices based on protected characteristics ✓
    • Negotiating the best price for a client
    • Recommending a home inspector

    STEERING: The illegal practice of directing prospective buyers or renters TOWARD or AWAY FROM particular neighborhoods, buildings, or areas based on a PROTECTED CLASS characteristic (race, color, religion, national origin, sex, familial status, disability) — thereby limiting their housing choices. E…

50. What is the purpose of the Truth in Lending Act (TILA) and the disclosure of the Annual Percentage Rate (APR)?

    • To set interest rates
    • To require lenders to disclose the true cost of credit to borrowers — including the APR, which reflects the interest rate plus certain fees, so borrowers can compare loan offers on a standardized basis ✓
    • To eliminate down payments
    • To regulate property taxes

    TRUTH IN LENDING ACT (TILA): A federal consumer protection law requiring lenders to DISCLOSE the true cost of credit so borrowers can make informed decisions and compare loans. KEY DISCLOSURE — APR (Annual Percentage Rate): Reflects the interest rate PLUS certain loan costs/fees (origination fees, p…

51. What is the key feature that distinguishes a fee simple absolute estate from a life estate?

    • A fee simple lasts only for the owner's lifetime
    • A fee simple absolute is the highest form of ownership — of potentially infinite duration and freely inheritable and transferable — while a life estate lasts only for the life of a specified person ✓
    • A life estate can be sold but a fee simple cannot
    • They are identical forms of ownership

    Fee simple absolute is the most complete ownership interest recognized in law: it has no time limit, passes to the owner's heirs, and can be sold, leased, mortgaged, or willed freely. A life estate, by contrast, lasts only as long as the life of a named person (the life tenant or another 'measuring …

52. What is the defining characteristic of joint tenancy that distinguishes it from tenancy in common?

    • Joint tenants must be married
    • Joint tenancy includes the right of survivorship, so when one joint tenant dies their interest passes automatically to the surviving joint tenants rather than to their heirs ✓
    • Joint tenants own unequal shares
    • Tenancy in common has the right of survivorship

    The hallmark of joint tenancy is the right of survivorship: on the death of a joint tenant, that share passes automatically to the surviving joint tenants and not through the deceased's will or to their heirs. Joint tenancy traditionally requires the four unities — time, title, interest, and possess…

53. What are the four government powers that limit private ownership of real estate, often remembered as 'PETE'?

    • Permits, Easements, Titles, Encumbrances
    • Police power, Eminent domain, Taxation, and Escheat ✓
    • Possession, Equity, Transfer, Estate
    • Property, Encroachment, Tenancy, Easement

    All private real estate is subject to four government powers, commonly memorized as PETE: Police power (the right to regulate for public health, safety, and welfare — zoning and building codes flow from this); Eminent domain (the power to take private property for public use with just compensation, …

54. What is a legal nonconforming use?

    • A use that violates current zoning and must be removed immediately
    • A use that was lawful when established but no longer conforms to a later zoning change, and is generally allowed to continue ('grandfathered') under conditions ✓
    • A use that requires a brand-new building permit
    • Any commercial use in a residential zone

    A legal nonconforming use exists when a property's use was permitted under the zoning in effect when it began, but a later change in the zoning ordinance no longer allows that use. Rather than forcing immediate removal, zoning law generally lets the use continue as 'grandfathered,' though typically …

55. Which appraisal approach is most appropriate for valuing an income-producing property such as an apartment building?

    • The cost approach
    • The income (capitalization) approach, which estimates value based on the net operating income the property produces ✓
    • The sales comparison approach only
    • None of the approaches apply to rentals

    The income approach (income capitalization) is the primary method for valuing income-producing real estate like apartment buildings, office buildings, or shopping centers. The appraiser estimates the property's net operating income (income after operating expenses but before debt service) and divide…

56. What is the difference between market value and price?

    • They always mean exactly the same thing
    • Market value is the most probable price a property should bring in a competitive, open market under fair conditions, while price is the amount actually paid in a specific transaction, which may differ ✓
    • Price is always higher than market value
    • Market value is set by the seller alone

    Market value is an opinion of the most probable price a property should sell for in a competitive and open market, assuming a willing buyer and seller, both acting knowledgeably and without undue pressure, and a reasonable exposure time. Price is simply the amount actually paid in a particular sale.…

57. In a typical mortgage loan, what is the role of the promissory note versus the mortgage (or deed of trust)?

    • They are the same document
    • The promissory note is the borrower's promise to repay the debt, while the mortgage (or deed of trust) is the security instrument that pledges the property as collateral for that debt ✓
    • The mortgage is the promise to pay and the note is the collateral
    • Neither involves the property

    A financed purchase involves two key instruments. The promissory note is the borrower's written promise to repay the loan — it states the amount, interest rate, payment terms, and is the evidence of the debt. The mortgage (or, in many states, a deed of trust) is the security instrument: it pledges t…

58. What federal law requires lenders to disclose the true cost of credit, including the annual percentage rate (APR), to consumers?

    • The Fair Housing Act
    • The Truth in Lending Act (TILA), implemented by Regulation Z ✓
    • The Sherman Antitrust Act
    • The Statute of Frauds

    The Truth in Lending Act (TILA), implemented through Regulation Z, requires lenders to disclose the cost of consumer credit in a uniform way so borrowers can compare loans. Key disclosures include the annual percentage rate (APR), the finance charge, the amount financed, and the total of payments. T…

59. Which set of fiduciary duties does an agent owe a client, commonly remembered by the acronym 'OLD CAR'?

    • Offer, Lease, Deed, Contract, Appraisal, Recording
    • Obedience, Loyalty, Disclosure, Confidentiality, Accounting, and Reasonable care ✓
    • Ownership, Liability, Damages, Closing, Agency, Rescission
    • Only the duty of honesty to all parties

    An agent owes a client a set of fiduciary duties often memorized as OLD CAR: Obedience (follow the client's lawful instructions), Loyalty (put the client's interests above all others, including the agent's own), Disclosure (tell the client all material facts the agent knows), Confidentiality (protec…

60. What is dual agency, and what is generally required for it to be lawful?

    • Representing two buyers at once with no disclosure
    • An agent (or brokerage) representing both the buyer and the seller in the same transaction, which is generally lawful only with the informed, written consent of both parties ✓
    • An agent who has two separate listings
    • It is always illegal everywhere

    Dual agency arises when the same agent or brokerage represents both the buyer and the seller in one transaction. Because the agent cannot give undivided loyalty to two parties with opposing interests, dual agency is permitted in most states only when both parties give informed, written consent after…

61. Under federal law, what must be disclosed about lead-based paint when selling a home?

    • Nothing, lead paint is never disclosed
    • For housing built before 1978, sellers must disclose known lead-based paint and hazards, provide an EPA pamphlet, and give buyers a 10-day opportunity to test ✓
    • Only homes built after 2000 require disclosure
    • Disclosure is required only for rentals

    The federal Residential Lead-Based Paint Hazard Reduction Act requires that for most housing built before 1978, sellers and landlords disclose any known lead-based paint and lead hazards, provide buyers or tenants with the EPA pamphlet on lead, include a lead warning statement in the contract, and g…

62. Why must contracts for the sale of real estate generally be in writing to be enforceable?

    • Because real estate agents prefer paperwork
    • Because the Statute of Frauds requires contracts for the sale or transfer of an interest in real property to be in writing and signed to be enforceable ✓
    • Oral real estate contracts are always enforceable
    • Only leases must be written

    The Statute of Frauds, adopted in some form in every state, requires that certain contracts — including those for the sale or transfer of an interest in real property — be in writing and signed by the party to be charged in order to be enforceable in court. This protects against fraudulent claims ba…

63. What is the effect of a contingency, such as a financing or inspection contingency, in a purchase agreement?

    • It makes the contract void from the start
    • It is a condition that must be satisfied (or waived) for the contract to proceed; if the contingency is not met, the protected party may typically cancel without breaching and recover their earnest money ✓
    • It guarantees the sale will close
    • It only benefits the seller

    A contingency is a condition written into a purchase agreement that must be met before the contract becomes fully binding or the parties are obligated to close. Common examples include financing contingencies (the buyer must obtain a loan), inspection contingencies (the buyer may inspect and object …

64. A home sells for $360,000 with a 6% total commission. If the listing and selling brokerages split the commission equally, how much does each brokerage receive?

    • $21,600
    • $10,800 ✓
    • $5,400
    • $43,200

    First find the total commission: $360,000 × 6% = $360,000 × 0.06 = $21,600. The two brokerages split it equally, so each receives $21,600 ÷ 2 = $10,800. (Any further split between a brokerage and its individual agent would come out of that brokerage's share and is a separate calculation.) Commission…

65. A rectangular lot measures 80 feet by 150 feet. Approximately how many acres is the lot? (1 acre = 43,560 sq ft)

    • About 0.55 acre
    • About 0.28 acre ✓
    • About 1.2 acres
    • About 2.0 acres

    First find the area in square feet: 80 ft × 150 ft = 12,000 sq ft. Then convert to acres by dividing by 43,560 sq ft per acre: 12,000 ÷ 43,560 ≈ 0.275, which rounds to about 0.28 acre. Area-and-acreage problems are common on the math portion, and the key fact to memorize is that one acre equals 43,5…